The Worst Stock for 2007: Martha Stewart Omnimedia

So you're looking for the worst stock for 2007? I suggest Martha Stewart Omnimedia (NYSE: MSO  ) . Why do I dislike the company? Let me count the ways.

Face value
For starters, the business revolves to a significant degree on the person and persona of the grand dame herself. That can be risky, as investors learned when she landed in some legal trouble a few years ago. Even with Stewart apparently back in fine form, her shareholders still aren't necessarily assured of smooth sailing.

Another consideration is Martha's role in the company. If you greatly respect what she made of it, you should know that she's no longer calling the shots. She's stepped down as chairman and CEO, and she's relinquished her seat on the board, as per an agreement with securities regulators. She's still very involved with the company, though, and still owns most of it.

Plus, her company isn't the only such brand around anymore. Oprah Winfrey has become a big business herself, augmenting her TV empire with her own successful magazine. And there are newcomers, too, such as Rachael Ray, whose magazine is published by Reader's Digest (NYSE: RDA  ) . In fact, in November, Barnes & Noble reported that Rachael Ray's magazine set a new sales record for the chain, selling more than 20,000 copies in its first two weeks.

Slowing down
Then there's the company's financial performance. Revenues have been growing recently, but over the past few years, they've been well below levels from 2001 and 2002. Over the past three years, net income has been a net loss -- and a growing one, at that. In 2003, $2.8 million was lost. In 2004, $59.6 million. In 2005, $75.8 million. Net profit margins fell from 8.2% to 4.5% between 2001 and 2002. Since then, the company has been in the red.

The stock traded around $35 nearly two years ago, but it's been sitting around $23 lately, having ascended from last year's perch in the teens.

'Fessing up
OK, before I end this piece, let me reveal that I'm not exactly an objective party here. Several years back, I lost good money investing in Martha Stewart Omnimedia. Read about it in " Martha Stewart: Not a Good Thing for Me," and you'll see that the real culprit in the investment gone bad was me. I invested for all the wrong reasons, and in the wrong way, and I got burned.

As 2007 draws near, if you're thinking of investing in Martha Stewart Omnimedia, make sure you consider it carefully, and that you don't make your decision based on poor reasoning.

What others think
Don't just accept my pessimism, though; gather some other opinions on the company. Over at our brand new Motley Fool CAPS community intelligence service, opinions are very mixed. The last time I checked, 41 players expected the stock to outperform, and 45 expected underperformance. Among our more select All-Star players, though, only six were bullish, compared with 15 bears.

As CAPS investor TMFElCapitan said:

"This company has a lot of great things going for it -- the look, the quality, the advice, the style, the things that help people (mostly women) make their lives a little nicer. It also makes Martha Stewart look just terrific. Still, none of those things has anything to do with being cost effective or creating shareholder value."

What do you think?
So what do you think? Is Martha Stewart Omnimedia the worst stock for 2007, or do you favor some other lovely little lump of coal?

Register your opinion in CAPS. You can rate the company as outperforming or underperforming the market. Based on the responses of our readers and participants, we'll declare the best small-cap stock of 2007 early next week.

Want to go back to the beginning of our Worst Stock for 2007 tournament? Right this way.

Foolanthropyis celebrating its 10th year! To learn more about our five Foolish charities or to make a donation, visit www.foolanthropy.com.

Longtime Fool contributor Selena Maranjian owns shares of no company mentioned in this article. Last time she checked, she was ranked 1,493 out of 17,523 in CAPS. For more about Selena, view her bio and her profile. The Motley Fool is Fools writing for Fools.


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